The FTSE advantage?

July 1, 2016 09:33 AM

The governor’s speech

As long as we posted the link, we thought it a good idea to review some key aspects of Governor Carney’s speech. It was impressive in its scope. Speaking of the three major areas of uncertainty that have been reinforcing each other was a very good strategy. That is if one wanted to justify in advance almost any action whatsoever by the Bank.

And in its relatively conservative action, the Bank of England is entitled to now pursue some other measures in the wake of what many view as a self-inflicted British wound. However, in terms of the expectation that the UK would remain in the EU, it is the same as an external shock; at least insofar as it was outside the received wisdom.

Amidst all of the other very salient discussion of the three types of uncertainty and the ways in which they tend to reinforce each other, there was a key statement on what might address them that we especially appreciated: “And one uncomfortable truth is that there are limits to what the Bank of England can do.”

Bravo. As our regular readers know, we are adamant about the failures of the political class to provide the constructive structural reforms that are necessary to reinforce the significant central bank efforts.

Within all of that was our one disappointment with what the governor had to say: the lack of any forceful admonition of the political class for failing to deliver more meaningful structural reform. Yet, perhaps discretion was the better part of valor. With the major flux in both UK parties’ leaderships, it is likely best to let the dust settle. In addition, and much like most other developed countries, the political situation is also so partisan that it has limited any chance for compromise that might foment more growth.

Of course, that is part of the reason the political classes have been so happy to abdicate the responsibility for stimulating their respective economies. And that goes back to U.S. Senator Schumer’s “Get to work Mr. Chairman” marching orders to Fed Chair Bernanke in mid-2012.

Yet with the central banks hitting the end of the very distended line on the potential for lower interest rates to stimulate economic growth, it might not be long before the central bankers decide it is time to hold the politicians’ feet to the structural reform fire.

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About the Author

Alan Rohrbach is Lead Analyst and President of Rohr International, Inc.  He is an international equity index, interest rate and foreign exchange trend advisor. His forte is ‘macro-technical’ analysis of how fundamental influences blend with technical aspects to drive trend psychology. Clients include international banks, hedge funds, other portfolio managers and individual traders.